Top 10 questions about multi-family (Q&A)
What is multi-family investment?
Multi-family investment refers to investing in a property with multiple housing units, such as apartment buildings or townhouses, with the goal of generating rental income and building long-term wealth.
How do I get started in multi-family investing?
To get started in multi-family investing, you’ll need to research the market, assess your finances and creditworthiness, find the right property, and secure financing. It’s also a good idea to seek guidance from a knowledgeable real estate professional or investment advisor.
What are the benefits of multi-family investing?
Multi-family investing offers several benefits, including steady cash flow from rental income, long-term appreciation of the property’s value, tax benefits, and potential for diversification of your investment portfolio.
What are the risks of multi-family investing?
The risks of multi-family investing include fluctuations in the housing market, changes in rental demand, unexpected maintenance and repair costs, and the potential for delinquent tenants. It’s important to carefully research the market and the property before investing.
DMC’s Opinion: You need to research landlord friendly states. Its imperative you find a state with the right balance of red tape (if any) and landlord incentives.
How do I finance a multi-family investment property?
There are several financing options for multi-family investment properties, including traditional mortgages, commercial loans, and private financing. It’s important to assess your financial situation and seek advice from a knowledgeable lender or financial advisor to determine the best option for you.
DMC’s Opinion: In this day and age of an 8% prime rate you must get creative to make deals. That creativity lies in the sellers motivation. If the seller is motivated to sell we can explore options like the seller providing us a seller carry back. A seller carry back is a loan the seller takes on. This type of loan only works if the seller owns the property free & clear of any other debt.
How do I calculate the potential ROI of a multi-family investment property?
To calculate the potential return on investment (ROI) of a multi-family investment property, you’ll need to consider factors such as the purchase price, rental income, operating expenses, and potential appreciation in value. Online calculators and spreadsheets can help you perform these calculations.
DMC’s Opinion: We use what is called the capitalization rate to measure a property’s value. The Capitalization rate or cap rate (for short) can be calculated as Net Operating Income (before debt service) / the purchase price of the property. To give you a metric to work with please use: 8%.
How do I find multi-family investment properties for sale?
You can find multi-family investment properties for sale through online listings, real estate agents, auction sites, and networking with other investors. It’s important to thoroughly research any property before making an investment.
DMC’s Opinion: Loopnet and Crexi are user friendly sites that allow you to find up to date information on multi families currently being sold.
What are the best markets for multi-family investing?
The best markets for multi-family investing depend on several factors, including population growth, job growth, rental demand, and affordability. Some of the top markets for multi-family investing in the US currently include cities such as Austin, Denver, Phoenix, and Seattle.
DMC’s Opinion: Watching the census will give you metrics to measure where people are going. To give you a metric to work with please apply our formula: 1 mile from the property: 10,000 people, 3 miles from the property: 30,000 people, 5 miles from the property 50,000 people.
Should I invest in turnkey multi-family properties or value-add properties?
Whether to invest in turnkey multi-family properties or value-add properties depends on your investment goals, risk tolerance, and available capital. Turnkey properties offer immediate rental income with less risk but may have lower potential for appreciation, while value-add properties require more investment but offer potential for higher returns.
DMC’s opinion: There are (3) grades to ranking commercial properties those grades are A (brand new center; higher rents), B (the center has been there for 20+ years; average rents), C (the center is on the up and out; lower rents then market). The goal of maximizing your profit, the biggest bang for your buck lies in a grade B center.
How do I manage a multi-family investment property?
Managing a multi-family investment property involves tasks such as tenant screening, rent collection, maintenance and repairs, and financial recordkeeping. You can choose to manage the property yourself or hire a property management company to handle these tasks for you.
DMC’s opinion: Currently, professional management companies charge anywhere from 3-4% for managing your property. If you choose to self-manage you can make up to 3%-4% more of a return. This depends on if you want to be more of a hands on owner or hands off. It also depends on your proximity to the center.
If you need advice we would love to help you on your next endeavor. Please call us (818) 761-4252.